State housing chief sees worsening foreclosure numbers

Thursday

Sep 27, 2007 at 12:01 AMSep 27, 2007 at 6:36 PM

BOSTON - Predicting the foreclosure crisis will worsen in Massachusetts next year, Patrick administration officials called on the state Legislature to step up consumer protection regulations, but industry officials cautioned lawmakers not to overreach and take away borrowing options.

Michael Norton and Jim O'Sullivan

Predicting the foreclosure crisis will worsen in Massachusetts next year, Patrick administration officials called on the state Legislature to step up consumer protection regulations, but industry officials cautioned lawmakers not to overreach and take away borrowing options.

Massachusetts lenders filed nearly 19,500 foreclosure statements in 2006 and foreclosures as so concentrated in several urban communities that Patrick administration officials are concerned about entire neighborhoods becoming economically and socially destabilized, Tina Brooks, state undersecretary of Housing and Community Development, told the Legislature’s Financial Services Committee Wednesday. She gave the committee maps pinpointing foreclosure trends in Holyoke, Lawrence, Lowell, Lynn, New Bedford, Springfield and Worcester.

“We haven’t seen the worst of the wave yet,” said Brooks. Based on the volume of adjustable rate loans written in late 2006, Brooks predicted 2008 will be a “very difficult year” for foreclosures as interest rates rise on those loans.

“Many of these mortgage resets are coming in 2008,” Brooks said. “Typically, some portion of those borrowers are going to face some problems.”

Committee co-chairman Rep. Ronald Mariano, D-Quincy, said he would produce an anti-foreclosure bill that incorporates provisions from proposals already put forth by Attorney General Martha Coakley, the Housing Committee, and the Patrick administration “within two weeks.” After a hearing that featured testimony on Patrick’s bill, Mariano said he was concerned by the drastic rise in foreclosures during the subprime lending crisis.

“I think the fact that a lot of the foreclosures have come through ... less than scrupulous loan originators, I think that we have to take a hard look at how people are getting into this market,” he said, adding, “I don’t think you can look at this issue enough.” Mariano said his staff had been working with the Housing Committee to formulate a fresh bill. “I think there are ways to define some of these things that would allow some creativity in the marketplace and still protect consumers who are getting in for the first time,” he said.

Committee member Sen. Michael Knapik, R-Westfield, described himself as “alarmed” by Brooks’ prediction. While praising state government’s “very good response” to foreclosures, Knapik described the crisis as the “kind of thing that could tumble us into a national recession.”

Patrick’s bill, filed three months ago, creates criminal penalties for mortgage fraud, requires a 90-day notice of intent to foreclose, prohibits foreclosure rescue schemes, and increases counseling for consumers considering subprime, variable rate mortgage loans. The bill also establishes a state database to help analyze foreclosure trends in Massachusetts. The bill is based on the recommendations of non-profit agencies, government agencies and mortgage lending industry representatives who formed a partnership known as the Mortgage Summit Group.

Committee members had few questions for Brooks or Banking Commissioner Steven Antonakes and Consumer Affairs Director Dan Crane. Rep. Joseph Driscoll, D-Braintree, did ask whether individuals likely to face foreclosures next year are actively looking for more “stable options” before their interest rates rise. “It depends on what’s available to those folks,” Brooks said, adding that some may be able to access fixed rate loans.

A $250 million program to assist homeowners facing foreclosures has also been put together by MassHousing, which contributed $60 million, and Fannie Mae, which is shouldering $190 million, said Brooks, who emphasized to the committee that program funds are “not from the taxpayers of Massachusetts.”

The option of selling homes in the face of a foreclosure is not as palatable as it has been, Brooks said, because sellers may not be able to generate enough revenue to cover their debts. “The market is not as strong as it has been in Massachusetts,” said Brooks.

Allison M. Staton, director of advocacy at the Massachusetts Association of Community Development Corporations, said the association supports most of the key elements of Patrick’s bill and told committee members they should enact an “immediate and comprehensive” response to the unfolding foreclosure crisis. Based on tours over the summer, foreclosures rate with alongside crime and jobs among top community concerns, Staton said. The governor’s bill would compliment Senate-approved legislation aimed at preventing mortgage foreclosures. “We urge the House to consider consolidating these to create a comprehensive bill,” Staton said.

The Senate bill makes mortgage fraud a felony and requires mortgage originators to be licensed. It also includes an “in-person” counseling requirement to educate borrowers considering variable or adjustable interest rate loans, calls for the state Division of Banks to rate mortgage lending companies on lending practices, and requires the foreclosure database recommended by Patrick.

Industry stakeholders told lawmakers they support many components of Patrick’s bill but warned against efforts to over-regulate, saying such a move will take away lending options that could be beneficial to borrowers looking to get into the Massachusetts housing market as prices come down. Industry officials say that in the wake of the national foreclosure crisis, the industry has self-regulated while facing a blitz of new state and federal regulations.

Saying she would be “saddened if people deserving of homes can’t get into them” due to over-regulation, Amy Tierce, regional manager of Fairway New England Mortgage, told state legislators: “Our industry now is back to the basics. A lot of self-correction has gone on.”

Denise Leonard, executive director of the Massachusetts Mortgage Association, said the trade group supports the licensing of loan originators and portions of Patrick’s bill. But Leonard cautioned against “duplicative and excessive” regulations that she said could constrain access to credit in an already “limited credit environment.” Efforts to crack down on subprime loans, she said, could also end up discouraging jumbo and portfolio loans.

“It will end up doing more harm than good as it is currently proposed,” she said of the governor’s bill.

Earlier this month, the Massachusetts Bankers Association, differentiating itself from national mortgage firms and citing the “public perception that funds are drying up for mortgage borrowers,” said banks in Massachusetts “have few, if any, foreclosure issues, and have plenty of funds available for qualified mortgage borrowers.”

The mortgage lending industry has “changed dramatically” due to the foreclosure crisis, both due to government regulation and self-regulation, said Kevin Cuff, executive director of the Massachusetts Mortgage Bankers Association. Those changes, including enhanced education requirements on both lenders and borrowers, have “captured a lot of behavioral issues that are out there.” He urged lawmakers to consolidate industry regulation.

Mary Ann Clancy, senior vice president and general counsel of the Massachusetts Credit Union League, said the group “generally” supports Patrick’s bill but urged lawmakers to carefully review its language due to the bill’s “breadth” and told them that adjustable rate mortgages “work in the right setting.”

Commissioner Antonakes told lawmakers a hotline set up in April to help individuals in foreclosure proceedings has taken 1,000 calls. He said that in many cases where proceedings had been initiated, the division obtained stays of those proceedings to review transactions and determine whether loan modifications were possible. Earlier this month, banking regulators set higher net worth and bond requirements for licensed mortgage brokers and lenders.

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